Are there some links between CEO remuneration and ESG performance? Exploring the links between the CEO's remuneration of the Wold's Top 48 Oil and Gas companies and their disclosed ESG performances.

Details

Supervisors

Grégoire, Philippe

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

We started by introducing what is the ESG world and how this “green shift” started. ESG corporate management is shaping the economic world and it can be declined into ESG certification for products or for entire companies. The ESG certifications also aim to fight back against the products/companies' “greenwashing” in order to establish patterns and criteria for products and companies that aspire to become ESG related. We have looked at the factors that compose CEO’s compensation frameworks, discovering that some factors (e.g. culture, strategy, and company non-financial performance) are actually related to the ESG word. So, having discovered that companies can add other targets (e.g. ESG targets) than the ones merely related to financial performance and that these ESG targets are also related to the CEO’s compensation framework, we aimed then to understand how ESG factors are related to the CEO’s compensation framework. In our research, we hypothesized a strong positive correlation between CEO pay and different ESG scores. Since all variables were latent, they were represented with reliant indicators of CEOs' base annual salary, cash bonuses, long-term incentives, and other fringe benefits such as awards represented by a company’s remuneration policy. These variables were considered a direct representation of the salary policies used by the studied organizations. On the other hand, ESG was represented by its average scores in various pillars, including management, innovation, carbon emission, and resource utilization. The findings reveal that Management ESG and Carbon Emission ESG scores exhibit a strong positive correlation with CEO compensation. Despite our predictions, we found that ESG innovation has a moderately negative correlation with CEO compensation. Additionally, resource use have moderate positive correlations with CEO remuneration policies among the selected companies. The study’s underlying theories attribute this phenomenon to organizations' determination to establish positive relationships with society. Consequently, they encourage their executives to establish CSR cultures that promote reputation building However, innovative ESG scores did not produce statistically significant results. Finally, we have found that there is a statistically significant positive correlation between two ESG variables (CO2 emission and Management) and the CEO’s pay, these findings validate our hypothesis. Through our findings, we can affirm that the “ESG shift” taken by the business world is also reflected into the CEO’s remuneration of the World Top 48 Oil and Gas companies.